On August 12, 1993, the President took a decisive step toward revitalizing the economy and eliminating corruption by announcing the inplementation of the long-anticipated real-name financial transaction system. In the past, it had been possible to open accounts and conduct business transactions under false names, directly and indirectly fostering institutionalized-corruption and illegal financial dealings. Deeming this reform as the most important in the creation of a New Korea, the President announced this action in a Presidential Emergency Decree, stating that the real-name system was essential for cutting the dark link between politics and business.

With the introduction of the real-name financial transaction system, it appears that financial dealings are becoming fully transparent and underground economic dealings and nonproductive land speculation are diminishing. It is hoped the funds that had been channeled into political circles in the past as a result of government-business collusion are now available for more productive activities.

Encouraging Signs

The implementation of a real-name financial transaction system, the easing of administrative controls, expanded capital investment by major enterprises, and increased financial and administrative support for small-and medium-sized enterprises all combined to lay a solid foundation for another economic take-off. Exports rose 7.6 percent in 1993 to US$82.4 billion, while imports grew just 2.5 percent. Korea was thus able to register a US$600 million trade surplus last year for the first time in four years. The current account also yielded a surplus of US$200-300 million. Industrial production has been growing at about a 10 percent rate during the first half of 1994. Furthermore, labor disputes decreased markedly last year, while the composite stock index of the Seoul Stock Exchange climbed markedly. In view of these indications, the Korean economy seems to be well on the way to revitalization.

External Policies for Greater International Cooperation

Import Liberalization

Korea is committed to fulfilling its international responsibilities. It positively supports the trend toward openness and utilizes it as a catalyst for further enhancing the international competitiveness of industry and thus speeding the advancement of the economy, so that it can join the group of advancedcountries.

Since 1980, Korea has made continuous efforts toward import liberalization. The import liberalization rate increased from 68.6 percent in 1980 to 98.1 percent in 1993. The average tariff rate decreased from 24.9 percent to 8.9 percent during the same period and is expected to be only 7.9 percent by the end of 1994, the same average level of tariffs found in OECD member countries.

In October 1989, Korea decided to relinquish GATT balance of payments protection which mostly covers agricultural products. According to the decision Korea will move to eliminate its remaining restrictions or otherwise make them conform with GATT rules by July 1, 1997.

Liberalizing Foreign Exchange Transactions and Capital Markets

In June 1993, the Korean Government made public the third-phase of the blueprint for financial liberalization and internationalization, which was implemented from the second half of 1993. Under the plan, procedures for various foreign exchange transactions are being gradually simplified. Beginning in 1994, the ceiling on foreign investment in the stock market will be gradually raised, and the bond market will also be gradually opened to foreign investment. Initially, from 1994 foreign investors will be allowed to purchase convertible bonds, even those issued by small-and medium-sized domestic enterprises.

Foreign-invested firms engaged in the manufacture of high-tech products or banking and other services are currenlty allowed to induce foreign credit repayable within three years. Beginning in 1997, the liberal inducement of foreign credit by both domestic and foreign-invested enterprises will be allowed.

Increasing Opportunities for Foreign Investors

In June 1993, the Korean Government also announced a five-year plan for liberalizing foreign investment. Under the plan, 132 of the 224 business lines currently being protected from foreign competition will be opened to foreign investment in five phases, over a period of five years starting from July 1993. With the implementation of this plan, of the total 1,148 business lines under the standard industrial classification of Korea, 1,056 will be open to foreign competition. This means that the foreign investment liberalization rate will rise from 83 percent as of June 2, 1993 to 93.4 percent by 1997.

Included among the business lines to be opened to foreign competition under the plan are most of the service industries including distribution and transportation, hospital management, vocational training and “value-added” communications.

The business conditions for foreign-invested firms will also be greatly improved through various measures, including relaxed control on the acquisition of land by foreign-invested firms, the augmented protection of foreign intellectual rights, and other similar steps.

Cooperation with the Rest of the World, Including Developing Nations and Socialist Countries

Expanding Trade and Economic Exchanges

The Republic of Korea has emerged as a major global trader by steadily pursuing freer trade and greater openness, while promoting its business presence around the world. In the past, Korea’s foreign trade concentrated on the developed world - mainly the United States, Japan and the EU. In more recent years, however, it has rapidly expanded trade and capital cooperation with Southeast Asia, former and present socialist countries and Third World nations as well.

Especially since the 1988 Seoul Olympics, economic interactions with the former Soviet republics have been brisk. The Republic of Korea is also increasing its support of economic development efforts in the Third World on the basis of its more than three decades’ experience with successful domestic development.

The nation will continue to pursue expanded and more diversified trade and to promote economic cooperation on a long-term basis with the rest of the world, taking into consideration the individual economic characteristics of each country.

With the United States, the Republic of Korea will pursue not only expanded bilateral trade and increased mutual private investment and technological cooperation but also government-to-government cooperation in industrial technologies. As for Japan, the Republic will pursue Forward-lookoing practical economic relations and will, in particular, strive to attract Japanese investment more effectively. Since Korea does not have serious trade issues with the EU it will focus on promoting overall economic cooperation, including mutual investment and industrial and technological cooperation.

With the dinamically growing Asian economies, such as China and Southeast Asian Nations, the Republic of Korea will endeavor to continue to expand two-way trade, especially by helping to meet their expanding needs for capital goods and intermediate products to support their continuing rapid development, while increasing imports from them as much as possible. The nation will also encourage Korean business investment in these countries and make efforts to build an industrial structure complementary with theirs.

The Republic of Korea is increasing its official development assistance to developing countries proportionate to its economic strength. In this, efforts are being made to combine such assistance with private Korean investment, with the aim of maximizing its effect, while developing two-way trade and other economic ties on a long-term basis.

Economic ties with the Commonwealth of Independent States and East European countries will continue to focus on commercial applications of their high technologies and other forms of technological cooperation and joint development of natural resources.

Korea Trade with and Investment in Various Countries and Regions

Note: Figures in parenthesis represent percentage of the total.

Active Participation in Multilateral Economic Forums

Korea has actively participated in virtually all major multilateral forums. During the Uruguay Round of trade talks, finally concluded in December 1993, Korea tried to make conrtibutions commensurate with its capabilities as a major world trading power, and play a mediating role between the developed and developing countries. Korea introduced various proposals in the Uruguay Round negotiations to reduce tariffs, eliminate non-tariff barriers, liberalize the textile trade, improve safeguards and reduce subsidies and countervailing duties.

The Republic of Korea is actively participating in global efforts to protect the environment, a crucial task facing all of humanity. In recent years it has joined the Convention on Climate Change, the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter, also called the London Dumping Convention, the Convention on International Trade in Endangered Species of Wild Fauna and Flora, and the Convention on Biological Diversity.

Korea has also begun an informal dialogue with the Organization for Economic Cooperation and Development (OECD) and has expanded participation in its various committees . Korea hopes and intends to improve its economic systems to the level of advanced countries so as to join the OECD in 1996.

One organization in which the Republic of Korea has played a particularly critical role has been the Asia-Pacific Economic Cooperation (APEC) forum, a forum for multilateral discussions on economic issues concerning the Asia-Pacific region.Two examples of Korea’s valuable efforts have been the “Seoul Declaration” adopted at the third APEC Ministerial Meeting hosted by the Republic which laid the foundation for the institutionalization of APEC, and its diplomatic role in bringing China, Taiwan and Hong Kong, three key regional economic powers, into the APEC fold, giving the forum a new impetus. Subsequently, the Republic played a leading role at the first APEC Leaders Economic Meeting in Seattle in November 1993, which coincided with the fifth APEC Ministerial Meeting, and was elected the chair member of the Committee on Trade and Investment (CTI).

Conclusion

The rise of the Korean economy over the past several decades, often called the “Miracle of the Han”, has been an inspiring model of modern economic development. The rapid pace with which the Koeran economy rose from the ashes of war and expanded stunned the outside world. However, this rapid growth was not unaccompanied by growing pains which began to manifest themselves in all sectors of society particularly during the late 1980s. Excessive wage hikes, high capital costs and an overly bureaucratic administration, not to mention institutionalized corruption, served to weaken Korea’s international competitiveness, and this was aggravated by unfavourable external circumstances. In the past year, though, strenuous efforts have been made to overcome these impediments and through this, as well as improving international economic climate, it appears that the Korean economy is regaining its former vigor. The upcoming years pose severe challenges for the Republic in light of the December 1993 conclusion of the Uruguay Round and the rise of the Asia-Pacific region as the new global economic center, but with the increasing emphasis in both the public and private sector on globalization and internalization, the Republic seems braced to meet these challenges.

REFORM TOWARD A NEW KOREA